Asia Pacific Economic Outlook - June 2010

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• China –Two of the biggest issues facing China at the moment involve prices. Specifically, there is concern about consumer prices and home prices. The first is in danger of accelerating and the second is in danger of collapsing.  Either event, or more likely the policy response thereof, could derail the economic recovery.  Let’s consider the facts.  First, inflation remains modest in China, with consumer prices up 3.1 percent in May over the previous year (although this is up from 2.2 percent in March). Yet the broad money supply was up almost 30 percent.  Given that money supply influences inflation with an expected lag of about six to nine months, this bodes poorly for inflation later this year and early next. Moreover, the economy is clearly growing at or near the point of overheating.  In May, exports were up 48.5 percent, the fastest pace in six years. At the same time, property prices are 12.4 percent over the previous year.


• Japan – Will Japan be like Japan?  More specifically, will Japan in the coming years resemble Japan in the 1990s?  That was the so-called “lost decade” during which Japan suffered from deflation, slow growth, and three recessions following the bursting of the equity and property price bubbles. Moreover, this was followed by policies that struggled to address the fundamental problems. Or, will Japan be like Japan in the period 2003-2008 when the economy grew modestly following a significant policy reversal.


• India – In April, India’s industrial production rose by a blistering 17.6 percent, far higher than most economists had expected and largely due to increased manufacturing output. Clearly India (along with other Asian countries) is not yet experiencing any fallout from the troubles in Europe or the moderate speed of the U.S. recovery. Although Europe is India’s largest export market (accounting for roughly 20 percent of India’s exports), Indian exports are still a relatively modest share of GDP (24 percent in 2008). Domestic demand accounts for much of the expanded output. Moreover, intra-emerging market trade is becoming a far greater importance to the growth of emerging nations than was the case in the past.


• Philippines – For a country that has lagged the rest of Asia in economic performance for several decades, the recent global crisis turned out to be relatively benign. While many other east Asian nations saw a catastrophic drop in exports and a commensurate decline in GDP in 2009, the Philippines experienced a mild slowdown with growth of 0.9 percent. That was, in part, due to a relatively modest export sector compared to neighboring countries. The Philippines is a more consumer oriented economy with a large income from expat remittances. The latter decelerated in 2009 but continued to grow. In 2010, remittances are expected to accelerate, particularly due to the strength of the Middle East economies where many Filipinos work.